It's great to see this project coming to fruition. My main reservation about
owning a smartphone has always been the idea of a device that knows everything
about me under the control of God knows who. This phone partially addresses
that issue, but can anyone here who's knowledgeable about encryption comment
on that aspect? Without some form of encrypted storage it would
seem like game-over when a well resourced adversary gains physical possession.
That is correct, in that case you need to encrypt either the files you want to be safe, or use full-disk encryption. I have no idea whether Purism will support selective file encryption or FDE out of the box, but it'd be pretty cool if they did.
That said, under the hood your phone is basically a Linux device, so doing this yourself might need some basic know-how of Linux administration, but shouldn't be too hard (regarding file encryption, FDE may be trickier).